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Declining State Funding and Efficiency Effects on Public Higher Education: Government Really Does Matter

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  • G. Thomas Sav

    (Wright State University)

Abstract

A stochastic cost frontier with inefficiency effects is estimated to investigate the impacts of decreases in state funding support on the operating efficiency of public colleges and universities in the U.S. Panel data for 378 institutions spanning 10 academic years, 2004 through 2013, captures the efficiency effects of declines in state funding from 32 % to 23 %. There are several improvements over early work of like kind that was, however, confined to four academic years, 2005 through 2008, and could not account for the accelerated effects of state funding decreases that followed the financial crisis. Inefficiency effects are extended to include both private giving as a substitute revenue source and federally funded Pell Grants. Empirical results are robust and support the notion that government does matter. Decreases in state funding create inefficiency in producing public higher education. Results also suggest the same for private giving and Pell Grant support, although the former was statistically weak at best. On the cost side, the results, not surprisingly, indicate that university administrators held costs down with hiring increases in non-tenure track faculty and staff relative to tenure track and tenured faculty.

Suggested Citation

  • G. Thomas Sav, 2016. "Declining State Funding and Efficiency Effects on Public Higher Education: Government Really Does Matter," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 22(4), pages 397-408, November.
    • Handle: RePEc:kap:iaecre:v:22:y:2016:i:4:d:10.1007_s11294-016-9602-z
    DOI: 10.1007/s11294-016-9602-z
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    References listed on IDEAS

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    1. G. Thomas Sav, 2010. "Private Giving Crowding Government Funding in Public Higher Education," American Journal of Economics and Business Administration, Science Publications, vol. 2(3), pages 293-299, September.
    2. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-332.
    3. Kiril Tochkov & Nikolay Nenovsky & Karin Tochkov, 2011. "University efficiency and public funding for higher education in Bulgaria," Post-Communist Economies, Taylor & Francis Journals, vol. 24(4), pages 517-534, November.
    4. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
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    Cited by:

    1. Cordis, Adriana S. & Muzatko, Steven, 2021. "Higher education spending and CPA exam performance," Journal of Accounting Education, Elsevier, vol. 55(C).
    2. Gralka, Sabine, 2018. "Stochastic frontier analysis in higher education: A systematic review," CEPIE Working Papers 05/18, Technische Universität Dresden, Center of Public and International Economics (CEPIE).
    3. Orosco Gavilán, Juan Carlos & Lopes Moreira Da Veiga, María Helena & Wiper, Michael Peter, 2023. "Measuring efficiency of Peruvian universities: a stochastic frontier analysis," DES - Working Papers. Statistics and Econometrics. WS 36250, Universidad Carlos III de Madrid. Departamento de Estadística.

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